Disclosure FAQs Help Early Adopters, But Plans May Need to Adjust, Borzi Says

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Conference Report: ABA Section on Taxation


Key Topic: DOL's FAQs say those making a good-faith effort to comply with participant fee disclosures will not be penalized initially.

Key Takeaway: Those not fully in compliance with participant-level fee disclosures by Aug. 30 will need to be in full compliance by the next disclosure, Borzi says.

By Kristen Ricaurte Knebel  

The good-faith reliance standard in the Department of Labor's frequently-asked-questions guidance on the participant-level fee disclosure rule gives plan sponsors a little leeway if they already have begun the disclosure process, but it does not let them off the hook entirely for compliance requirements, Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration, said during a May 11 session of a tax conference.

Speaking about Question 37 of the FAQs that DOL released May 7 (88 PBD, 5/8/12; 39 BPR 921, 5/15/12), Borzi said plans that have already distributed, or are getting ready to distribute, their participant-level fee disclosures under Section 404(a) of the Employee Retirement Income Security Actwill not be subject to DOL enforcement action if they acted in good faith to comply with the rule.

“People have already begun to plan for compliance and, in some cases, have already begun to distribute statements to participants,” she said. “The question of course, always is … what if you are somebody who actually tried to be conscientious and plan and you were ahead of the curve … and had already done some disclosure or are about to disclose?” Borzi said during a session of the American Bar Association Section of Taxation's May meeting.

Borzi said Question 37 makes it clear that, in regards to those acting “in good faith with a reasonable interpretation of the regulation,” DOL is not “going to go after you, at least initially, for failure to … figure out what was in our minds” when the rule was written.

However, Borzi cautioned that plans that discover they were not in totally in compliance with the participant disclosure rule in light of the FAQs will need to develop a plan to comply with the law before their next participant disclosure.

The initial general disclosures must be made on or before the date that plan participants can first direct their Section 401(k) plan investments, and yearly thereafter, according to DOL. Beyond that, fiduciaries also must provide plan participants with statements at least once a quarter that show the dollar amount of plan-related fees and expenses that will be charged to or deducted from participants' accounts (198 PBD, 10/15/10; 37 BPR 2261, 10/19/10).

“If you've already sent out your 404(a) … and it doesn't mesh with what our guidance suggests that you need to do, then the next time you do this disclosure, it's gotta be in compliance,” she said.

Borzi said the department is still receiving questions regarding the rule requiring disclosures to participants as well as the one under ERISA Section 408(b)(2) on disclosures by covered service providers to plan fiduciaries, and the department plans to release at least one more set of FAQs on the rules. The next set of FAQs will focus on the Section 408(b)(2) rule and should be out shortly, she said.

By Kristen Ricaurte Knebel  

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